“Precautionary” Bank Move In Australia

Press, Volume CIII, Issue 30337, 13 January 1964, Page 15

“Precautionary” Bank Move In Australia

(N.Z. Press Association—Copyright)

SYDNEY, January 7. The Reserve Bank of Australia has called up an additional £2sm from the trading banks. The call-up was announced today by the Governor of the Reserve Bank (Dr. H. C. Coombs). He described it as “a precautionary restraint.” He said that funds remaining with the banks would be ample for current bank lending, and for sufficient new lending to support expanding economic activity and high employment. From tomorrow (January 8) banks will have to pay in to ttieir statutory reserve deposit accounts with the Reserve Bank 12 per 'cent of their deposits, compared with the present rate of 10.8 per cent. Dr. Coombs foreshadowed the probability of further call-ups of bank deposits during the next two or three months. The latest move will bring the total amount in trading banks’ statutory reserve deposit accounts to £254m. Dr. Coombs made his announcement at a press conference at the Reserve Bank this afternoon. He said: “The major trading banks are to be required to transfer additional amounts to their statutory reserve deposit accounts with the Reserve Bank. “Balances held in these accounts are not freely avail-

able to the banks and the transfer will, therefore, mean some reduction in free bank liquidity. “However, the banking system’s holdings of liquid assets have risen very considerably over recent months and will remain ample to support current bank lending. “The addition to the Reserve deposit accounts will result from a decision by the Reserve Bank to increase the percentage of trading bank deposits required to be held for the time being in these accounts. “The present reserve deposit ratio is 10.8 per cent of deposits and the new requirement to operate from January 8 is 12 per cent.” Dr. Coombs said that the transfer to reserve deposit accounts of part of the recent large additions to bank liquid assets did not mean any change in the banking policies publicly stated by the Reserve Bank last October. (The board of the Reserve Bank on October 31, after reviewing the economy, decided to take no action at this stage, to impose any further restraint on lending by the trading banks. Dr. Coombs said at the time that the Reserve Bank would “continue to watch carefully the movement of liquidity both of the public and of the banks.”) New Lending

Dr. Coombs said banks would still hold sufficient liquid funds to enable new lending to continue at a rate sufficient to support expanding economic activity and high employment. “However, one of the main responsibilities of the central bank is to maintain a balance between the supply of money and credit and the amount of goods and services available. “Developments over recent months suggest that over 1963-64 as a whole there will be a substantial rise from levels which were already high in the holdings of money and other liquid assets both by the community generally and by the banking system. “The main factor contributing to this is Australia’s very favourable balance of payments with other countries. High export receipts and a strong inflow of capital from abroad have been adding to liquidity generally. “Deposits with savings and trading banks have risen to very high levels thereby adding to their capacity to lend. In these circumstances some precautionary restraint of the growth of trading bank liquidity is considered appropriate.” Dr. Coombs said that since bank liquid assets were likely to continue to grow over the next two or three months he foreshadowed the probability of further adjustments to the reserve deposit ratio during that period.